Niall Ferguson peers into Europe's future and sees Greek gardeners, German sunbathers—and a new fiscal union. Welcome to the other United States.
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| Map illustration by Peter Arkle |
'Life is still far from easy in the peripheral states of the United States of Europe (as the euro zone is now known).'
Welcome to Europe, 2021. Ten years have
elapsed since the great crisis of 2010-11, which claimed the scalps of
no fewer than 10 governments, including Spain and France. Some things
have stayed the same, but a lot has changed.
The euro is still circulating, though banknotes are now seldom seen.
(Indeed, the ease of electronic payments now makes some people wonder
why creating a single European currency ever seemed worth the effort.)
But Brussels has been abandoned as Europe's political headquarters.
Vienna has been a great success.
"There is something about the Habsburg
legacy," explains the dynamic new Austrian Chancellor Marsha Radetzky.
"It just seems to make multinational politics so much more fun."
The Germans also like the new
arrangements. "For some reason, we never felt very welcome in Belgium,"
recalls German Chancellor Reinhold Siegfried von Gotha-Dämmerung.
Life is still far from easy in the
peripheral states of the United States of Europe (as the euro zone is
now known). Unemployment in Greece, Italy, Portugal and Spain has soared
to 20%. But the creation of a new system of fiscal federalism in 2012
has ensured a steady stream of funds from the north European core.
Like East Germans before them, South Europeans have grown accustomed
to this trade-off. With a fifth of their region's population over 65 and
a fifth unemployed, people have time to enjoy the good things in life.
And there are plenty of euros to be made in this gray economy, working
as maids or gardeners for the Germans, all of whom now have their second
homes in the sunny south.
The U.S.E. has actually gained some members. Lithuania and Latvia
stuck to their plan of joining the euro, following the example of their
neighbor Estonia. Poland, under the dynamic leadership of former Foreign
Minister Radek Sikorski, did the same. These new countries are the
poster children of the new Europe, attracting German investment with
their flat taxes and relatively low wages.
But other countries have left.
David Cameron—now beginning his fourth
term as British prime minister—thanks his lucky stars that, reluctantly
yielding to pressure from the Euroskeptics in his own party, he decided
to risk a referendum on EU membership. His Liberal Democrat coalition
partners committed political suicide by joining Labour's disastrous
"Yeah to Europe" campaign.
Egged on by the pugnacious London
tabloids, the public voted to leave by a margin of 59% to 41%, and then
handed the Tories an absolute majority in the House of Commons. Freed
from the red tape of Brussels, England is now the favored destination of
Chinese foreign direct investment in Europe. And rich Chinese love
their Chelsea apartments, not to mention their splendid Scottish
shooting estates.
In some ways this federal Europe would gladden the hearts of the
founding fathers of European integration. At its heart is the
Franco-German partnership launched by Jean Monnet and Robert Schuman in
the 1950s. But the U.S.E. of 2021 is a very different thing from the
European Union that fell apart in 2011.
* * *
It was fitting that the disintegration of the EU should
be centered on the two great cradles of Western civilization, Athens
and Rome. But George Papandreou and Silvio Berlusconi were by no means
the first European leaders to fall victim to what might be called the
curse of the euro.
Since financial fear had started to spread through the euro zone in
June 2010, no fewer than seven other governments had fallen: in the
Netherlands, Slovakia, Belgium, Ireland, Finland, Portugal and Slovenia.
The fact that nine governments fell in less than 18 months—with another
soon to follow—was in itself remarkable.
But not only had the euro become a government-killing machine. It was
also fostering a new generation of populist movements, like the Dutch
Party for Freedom and the True Finns. Belgium was on the verge of
splitting in two. The very structures of European politics were breaking
down.
Who would be next? The answer was
obvious. After the election of Nov. 20, 2011, the Spanish prime
minister, José Luis Rodríguez Zapatero, stepped down. His defeat was
such a foregone conclusion that he had decided the previous April not to
bother seeking re-election.
And after him? The next leader in the crosshairs was the French
president, Nicolas Sarkozy, who was up for re-election the following
April.
The question on everyone's minds back
in November 2011 was whether Europe's monetary union—so painstakingly
created in the 1990s—was about to collapse. Many pundits thought so.
Indeed, New York University's influential Nouriel Roubini argued that
not only Greece but also Italy would have to leave—or be kicked out
of—the euro zone.
But if that had happened, it is hard to see how the single currency
could have survived. The speculators would immediately have turned their
attention to the banks in the next weakest link (probably Spain).
Meanwhile, the departing countries would have found themselves even
worse off than before. Overnight all of their banks and half of their
nonfinancial corporations would have been rendered insolvent, with
euro-denominated liabilities but drachma or lira assets.
Restoring the old currencies also would have been ruinously expensive
at a time of already chronic deficits. New borrowing would have been
impossible to finance other than by printing money. These countries
would quickly have found themselves in an inflationary tailspin that
would have negated any benefits of devaluation.
Some bumpy moments in recent EU history.
For all
these reasons, I never seriously expected the euro zone to break up. To
my mind, it seemed much more likely that the currency would survive—but
that the European Union would disintegrate. After all, there was no
legal mechanism for a country like Greece to leave the monetary union.
But under the Lisbon Treaty's special article 50, a member state could leave the EU. And that is precisely what the British did.
***
Britain got lucky. Accidentally, because of a personal
feud between Tony Blair and Gordon Brown, the United Kingdom didn't join
the euro zone after Labour came to power in 1997. As a result, the U.K.
was spared what would have been an economic calamity when the financial
crisis struck.
With a fiscal position little better than most of the Mediterranean
countries' and a far larger banking system than in any other European
economy, Britain with the euro would have been Ireland to the power of
eight. Instead, the Bank of England was able to pursue an aggressively
expansionary policy. Zero rates, quantitative easing and devaluation
greatly mitigated the pain and allowed the "Iron Chancellor" George
Osborne to get ahead of the bond markets with pre-emptive austerity. A
better advertisement for the benefits of national autonomy would have
been hard to devise.
At the beginning of David Cameron's premiership in 2010, there had
been fears that the United Kingdom might break up. But the financial
crisis put the Scots off independence; small countries had fared
abysmally. And in 2013, in a historical twist only a few die-hard Ulster
Unionists had dreamt possible, the Republic of Ireland's voters opted
to exchange the austerity of the U.S.E. for the prosperity of the U.K.
Postsectarian Irishmen celebrated their citizenship in a Reunited
Kingdom of Great Britain and Ireland with the slogan: "Better Brits Than
Brussels."
Another thing no one had anticipated in 2011 was developments in
Scandinavia. Inspired by the True Finns in Helsinki, the Swedes and
Danes—who had never joined the euro—refused to accept the German
proposal for a "transfer union" to bail out Southern Europe. When the
energy-rich Norwegians suggested a five-country Norse League, bringing
in Iceland, too, the proposal struck a chord.
The new arrangements are not especially popular in Germany,
admittedly. But unlike in other countries, from the Netherlands to
Hungary, any kind of populist politics continues to be verboten in Germany. The attempt to launch a "True Germans" party (Die wahren Deutschen) fizzled out amid the usual charges of neo-Nazism.
The defeat of Angela Merkel's
coalition in 2013 came as no surprise following the German banking
crisis of the previous year. Taxpayers were up in arms about Ms.
Merkel's decision to bail out Deutsche Bank, despite the fact that
Deutsche's loans to the ill-fated European Financial Stability Fund had
been made at her government's behest. The German public was simply fed
up with bailing out bankers. "Occupy Frankfurt" won.
Yet the opposition Social Democrats
essentially pursued the same policies as before, only with more
pro-European conviction. It was the SPD that pushed through the treaty
revision that created the European Finance Funding Office (fondly
referred to in the British press as "EffOff"), effectively a European
Treasury Department to be based in Vienna.
It was the SPD that positively
welcomed the departure of the awkward Brits and Scandinavians,
persuading the remaining 21 countries to join Germany in a new federal
United States of Europe under the Treaty of Potsdam in 2014. With the
accession of the six remaining former Yugoslav states—Bosnia, Croatia,
Kosovo, Macedonia, Montenegro and Serbia—total membership in the U.S.E.
rose to 28, one more than in the precrisis EU. With the separation of
Flanders and Wallonia, the total rose to 29.
Crucially, too, it was the SPD that whitewashed the actions of Mario
Draghi, the Italian banker who had become president of the European
Central Bank in early November 2011.
Mr. Draghi went far beyond his
mandate in the massive indirect buying of Italian and Spanish bonds that
so dramatically ended the bond-market crisis just weeks after he took
office. In effect, he turned the ECB into a lender of last resort for
governments.
But Mr. Draghi's brand of quantitative easing had the great merit of
working. Expanding the ECB balance sheet put a floor under asset prices
and restored confidence in the entire European financial system, much as
had happened in the U.S. in 2009. As Mr. Draghi said in an interview in
December 2011, "The euro could only be saved by printing it."
So the European monetary union did not
fall apart, despite the dire predictions of the pundits in late 2011.
On the contrary, in 2021 the euro is being used by more countries than
before the crisis.
As accession talks begin with Ukraine,
German officials talk excitedly about a future Treaty of Yalta, dividing
Eastern Europe anew into Russian and European spheres of influence. One
source close to Chancellor Gotha-Dämmerung joked last week: "We don't
mind the Russians having the pipelines, so long as we get to keep the
Black Sea beaches."
***
On reflection, it was perhaps just as well that the euro
was saved. A complete disintegration of the euro zone, with all the
monetary chaos that it would have entailed, might have had some nasty
unintended consequences. It was easy to forget, amid the febrile
machinations that ousted Messrs. Papandreou and Berlusconi, that even
more dramatic events were unfolding on the other side of the
Mediterranean.
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| Mark Nerys |
Back then, in 2011, there were still
those who believed that North Africa and the Middle East were entering a
bright new era of democracy. But from the vantage point of 2021, such
optimism seems almost incomprehensible.
The events of 2012 shook not just Europe but the whole world. The
Israeli attack on Iran's nuclear facilities threw a lit match into the
powder keg of the "Arab Spring." Iran counterattacked through its allies
in Gaza and Lebanon.
Having failed to veto the Israeli action, the U.S. once again sat in
the back seat, offering minimal assistance and trying vainly to keep the
Straits of Hormuz open without firing a shot in anger. (When the entire
crew of an American battleship was captured and held hostage by Iran's
Revolutionary Guards, President Obama's slim chance of re-election
evaporated.)
Turkey seized the moment to take the
Iranian side, while at the same time repudiating Atatürk's separation of
the Turkish state from Islam. Emboldened by election victory, the
Muslim Brotherhood seized the reins of power in Egypt, repudiating its
country's peace treaty with Israel. The king of Jordan had little option
but to follow suit. The Saudis seethed but could hardly be seen to back
Israel, devoutly though they wished to avoid a nuclear Iran.
Israel was entirely isolated. The U.S. was otherwise engaged as
President Mitt Romney focused on his Bain Capital-style "restructuring"
of the federal government's balance sheet.
It was in the nick of time that the
United States of Europe intervened to prevent the scenario that Germans
in particular dreaded: a desperate Israeli resort to nuclear arms.
Speaking from the U.S.E. Foreign Ministry's handsome new headquarters in
the Ringstrasse, the European President Karl von Habsburg explained on
Al Jazeera: "First, we were worried about the effect of another oil
price hike on our beloved euro. But above all we were afraid of having
radioactive fallout on our favorite resorts."
Looking back on the previous 10 years, Mr. von Habsburg—still known
to close associates by his royal title of Archduke Karl of Austria—could
justly feel proud. Not only had the euro survived. Somehow, just a
century after his grandfather's deposition, the Habsburg Empire had
reconstituted itself as the United States of Europe.
Small wonder the British and the Scandinavians preferred to call it the Wholly German Empire.
—Mr. Ferguson is a professor of history at Harvard
University and the author of "Civilization: The West and the Rest,"
published this month by Penguin Press.
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